Lord Mackie of Benshie: My Lords, however, I believe that the original purpose of the CAP was right and proper. It provided a degree of security in order to secure the production that we needed for food security in the European Community, as it was then. What has happened is that as time has gone by the market has been forgotten. I believe in the market, but I also believe in some form of protection for the primary producer who normally cannot organise himself in the way that the manufacturer and the buyer of his produce can. What has been wrong is that, as the European Community has grown, the economic facts have been ignored and for political reasons time and again agriculture Ministers have ignored the advice of the Commission and put up prices to a level where we have production on a scale which has done great harm to the producers in New Zealand, Australia and elsewhere.

I still believe in protection for primary producers, but in a sensible way and not in the way it has gone on in the European Union to date. We are now in a position where something must be done about it because of the GATT reforms and the enormous cost of paying the large subsidies required.

We have also got into a situation where the social effects of removing subsidies altogether would be devastating in many areas. To that end, the report has very sensibly advocated that compensation be paid where that is going to occur. I believe that farmers in this country have a very good case for holding on to the quota they have. We have to make the quota system work. That means a constant effort by Her Majesty's Government and other sensible people to get the quota cut to a size where we no longer export subsidised sugar onto the market. Twenty five per cent. of world trade comes from the European Community and, as has been

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said already, that has done great harm to the ACP countries and developing countries producing sugar. The system can be made to work to a degree.

We should not forget that sugar beet is a very useful crop. It did more to transform the county of Norfolk, of which I know a little, than any other crop. It has all the virtues of going down deep and aerating the soil. It is only a part of a rotation. It cannot take up the major part of anyone's land. In that regard, talk from the noble Lord, Lord Mottistone, of sugar beet farmers revelling in wealth is a little out of place. To compare sugar beet with winter wheat, as the Ministry does here, is quite wrong. There is nothing easier to grow that winter wheat. One sows it and sprays it and then the great combine lashes into it and it is taken away. It is one of the most mechanised and easy crops to grow. One can use a large proportion of one's land for winter wheat. It can be grown as a single crop quite successfully.

Sugar beet is an entirely different thing. It is a major consumer of labour. There are costs of every kind. Sugar beet has to be dug up in appalling weather. It has to be taken to the roadside and loaded. One has to hold up the noble Lord, Lord Middleton, when he wants to go to the station. It is a different crop with a different concentration altogether to winter wheat. It is ludicrous to show in a table how much more profitable it is to grow beet than winter wheat. Of course, it is more profitable.

If one wants to take it to a ridiculous level one should consider the strawberry grower. In a good year he can take in something like £5,000 to £10,000 a acre. That is more profitable than growing winter wheat. Therefore, I do not believe that that particular argument washes.

The other point concerns crying over the poor consumer. I know that if one takes each item and says that it is only a small part of the budget one comes to a ridiculous point. But in fact in Britain, according to the table, the price of sugar to the consumer in American cents is 42.64. In all the other EU countries it appears to be more, but it is only half of what it is in Tokyo and less than what it is in Washington DC, where it is 43.09 cents compared with 42.64 cents in London.

Sugar appears to be very cheap in developing countries and in Brasilia which grows a lot of cane sugar. When it comes to the manufacturers screaming about price, as they do frequently, the fact is that if one takes any object in the shops nowadays and looks at what sum goes to the farmer as a proportion of the price, it is immensely small.

Taking all these factors into account, the Government should be doing their absolute best to see that the total quota ABCit is a ridiculous computation, although I know the difference between ABCin this country is held on to. It fulfils the objectives put forward by the noble Lord, Lord Marlesford, because it is competently produced and is doing a good job for this country. When one looks at the proportions in the other table, one can see that, apart from Portugal, this country produces less from the consumption of sugar than any other country in the EU. I hope that there will be a hard fight by the Government on that point.

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I must take up the point of saleable quotas. They have distorted the position in potatoes and milk in quite an extraordinary manner. What the noble Lord said about the quota being worth more than the land is true in many cases. We appear to have got into a ridiculous position. It is true that if we had tradable quotas throughout the whole Community they would end up where the most efficient farmers and processors are. It would also be very difficult for the processor because one cannot buy a quota to grow sugar beet unless the processor in that area is willing to take it. So one really cannot have the same freedom as one has with milk, because milk can be produced and plenty of people are willing to buy it.

Lord Marlesford: My Lords, I thank the noble Lord for giving way. He is absolutely right. That is one of the factors which determines the price of the quota and who will buy it. Nobody would buy a quota if they were not able either to grow the crop efficiently or to deliver it. As I have said, that can determine the price of the quota. It is economic market forces at work.

Lord Mackie of Benshie: My Lords, I accept that. Nobody will buy a quota at a peak price if their local factory will not process the product. The opportunity for farmers in Scotland to grow beet was removed. That could have been done with great efficiency in the east of Scotland, but the factory was taken away from us. The poor Scottish farmer is left with winter wheat and similar crops. That is not very good for us.

I like the report in many ways. It points out many useful and sensible things. I do not think that politically it is possible for us to have a fair system of free trade and open competition in this. I believe that there will be some form of allocation of grant in this business for some time to come. The European Union must get the price down to a reasonable level. There is no doubt that Poland and Hungary will push for membershiprightly soand very much sooner than some people think. They will also become efficient producers very much quicker than we have assumed in the past. As I have said, I like the report, but I do not think that the wish expressed in it will come true in terms of moving on to a system of open competition. We must therefore make the best of the present system and ensure that it works sensibly.

I hope that the Minister will be sympathetic to the British farmer. Last month the Foreign Secretary made a speech to the German Society for Foreign Affairs in which he stated:

"If Poland, Hungary, the Czech Republic and Slovakia were to join the Union tomorrow, with the Common Agricultural Policy and structural funds operating as they do today, the bill would be around 100 billion DM a year.

Neither Britain nor Germany would be willing to pay. So we must get on and reform the CAP and adapt the structural funds. This will not be easy. The beneficiaries of the status quo will protest. But their protests cannot be allowed to obstruct enlargement".

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If that is the attitude and if the Foreign Secretary has any influence, I hope that at least the Minister will endeavour to protect British interests as far as he can.

7.3 p.m.

Lord Carter: My Lords, I join other noble Lords in congratulating the sub-committee and its chairman, the noble Lord, Lord Middleton, on producing an excellent analysis of a complicated support regime. We have had an extremely interesting debate. In a debate on sugar we have had references to antique clocks, Karl Marx and Benjamin Disraeli.

I should say immediately that the European Commission can hardly be accused of a burst of frenetic activity in the way in which it has approached reform of the regime. As I understand it, the future of the regime is now not likely to be discussed until the meeting of the Council of Ministers at the end of May. Indeed, there could well be further delay after that. It would be helpful if the Minister could say something about the timetable and whether the target date of 1st June will be reached.

When considering this regime and others, I sometimes wonder whether the Eurocrats have any concept of commercial reality or the rhythm of the farming seasons. I suppose that a bureaucracy that announces a reduction in the set-aside percentage for the current season in Decembersome two to three months after winter-sown crops are plantedcan hardly be expected to announce its proposals for the reform of an important crop regime in a timely fashion.

The committee draws attention well to the way in which sugar quotas have worked to the disadvantage of the UK in terms of the amount that has been allocated. I have to say on that point that the performance of the Government in 1981 over sugar beet quotas and in 1983 over milk quotas betrays a certain failure in negotiating on behalf of the British position. I put it no more strongly than that.

The report analyses well the substantial imperfections of the sugar regime, especially as far as consumers are concerned. I shall return to the question of tradable quotas at farm level later, but I must point out that I find one statement regarding the effect of the regime a little hard to follow. I refer to paragraph 12 on page 8 which states:

"since quotas cannot be sold, high cost production is maintained in some regions and the total cost of EC production is unnecessarily high".

There is a problem here which applies to all of our reports. When we talk about a "region", it would be helpful if it could be made clear whether we are talking about a region within a country or a region of the European Union. There is obviously an important distinction. As we know, the location of sugar beet growing in the UK is largely a matter of distance from the nearest factory. Sugar beet is a bulky crop to transport. There are large areas of the country in which it cannot be grown because there is no factory to take it within an economic distance.

Unless I am missing some obvious point, I cannot see why the making of quotas which would be tradable within the UK would have much effect on either the

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efficiency of the process or the cost of production at farm level. The argument might stand up if quotas were tradable across national boundaries, but I suspect that that would produce as many problems as it would solve. Anyway, it is politically a non-starter. The noble Lord, Lord Reay, made that point. As I have said, I shall return to the point about tradable quotas at farm level later.

The arguments for an increaseor at least for no cutin the UK quota are persuasive. In the real world of EU negotiations, with trade-offs and deals on the side, I wonder how easy it would be to achieve that when it is proposed by the Commission to phase out national aids in Spain, Germany and northern Italy and to reduce them by 50 per cent. in central and southern Italy. In passing, I cannot help but admire the sheer chutzpah of the Commission in making a 50 per cent. distinction in aid levels between different areas of Italy. As your Lordships will know, chutzpah is defined as "shameless audacity".

The committee makes short work of the argument that we need a sugar regime of the sort proposed to ensure stability in the market and security of supply. I am sure that that approach is correct. It is interesting to note, purely historically, that the main reason that we have a sugar beet industry at all in this country is founded on the arguments about security of supply and providing employment, which were adduced in the 1930s. Obviously, security of supply became extremely important during the war, but that is now a piece of history.

I am almost convinced by the committee's response to the Commission's argument that the regime must be maintained intact to provide the machinery to meet the European Union's obligations under GATT. The reason that I am not completely convinced by the committee's argument is the uncertainty over exactly how the GATT commitments will be achieved in the European Union and the possible effects of the accession of the eastern European countries at some time in the future. One can seealbeit extremely reluctantlywhy the Commission wants to avoid a root-and-branch reform in that uncertain situation. It is the natural reaction of the bureaucrat. I still think that the Commission is wrong, but I think I can understand its nervousness and its wish to make haste slowly in that respect.

The committee is certainly correct in accepting the Commission's assertion that the existing sugar regime, or something like it, can exist alongside the regimes for the combinable cropscereals, oilseeds and proteins. In terms of its production and marketing characteristics, sugar beet most resembles oilseed crops. It is a pure industrial crop, with animal feed byproducts. It is grown and stored on the farm and moved to comparatively few processing plants. As we know, as a source of farm income, it has worked extremely well for those growers who have been allocated a quota.

I am surprised that the committee was surprised by the Commission's failure to mention the consumer interest. I am tempted to ask in the jargon, "What's new?". When was the Commission last concerned about the consumer interest in almost anything it does in the CAP?

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I am always sceptical of price forecasts as a result of changes in the European support policies. In that context, it is instructive to look back at the forecasts made in 1992 for 1994 and 1995 prices as a result of the MacSharry reforms. We know that as regards most agricultural products prices are much higher than were then forecast. In this country that was largely due to devaluation and not to the effect of reforms. However, as regards a regime that subsidises the product as heavily as does the sugar regime, there must be some effect on world prices if it is reformed.

At paragraph 65, the committee makes the point that without a sugar regime, which is extremely unlikely, users could buy sugar at a price 40 per cent. below the present price. However, I do not see that the committee describes the mechanism by which such a reduction would be passed on to the final consumer, bearing in mind the concentration in market power in the sugar industry. The committee is right to point out in paragraph 66 that the regime encourages high cost production in unsuitable regions. I repeat that we should always define what we mean by "region"